Blacklisting without specific prior notice of proposed action violates natural justice.

The petitioner, M/s Jin Mata Traders, challenged the order dated 08.10.2024 by which it was blacklisted for three years and its security deposit was forfeited in connection with failure to complete the supply of sugar to beneficiaries.

The respondents contended that the forfeiture was authorised by the contractual terms and followed consideration of the petitioner’s responses, and further relied on the arbitration clause contained in the contract.

The petitioner argued that the show-cause notices dated 09.02.2024, 06.05.2024 and 31.05.2024 did not specifically propose blacklisting, but merely stated that “action in accordance with law” would be initiated.

Whether the High Court should adjudicate the validity of forfeiture of the petitioner’s security deposit when the contract contains an arbitration clause and the dispute involves questions of fact.

Whether the blacklisting order was sustainable when the petitioner was not served with a specific show-cause notice proposing blacklisting.

The Court applied the principle that contractual disputes involving disputed questions of fact should ordinarily be adjudicated through the specialised dispute-resolution mechanism agreed upon by the parties, including arbitration.

Relying on Gorkha Security Services v. Govt. (NCT of Delhi), (2014) 9 SCC 105, UMC Technologies (P) Ltd. v. Food Corporation of India, (2021) 2 SCC 551, and Vetindia Pharmaceuticals Ltd. v. State of U.P., (2021) 1 SCC 804, the Court held that blacklisting carries serious civil and commercial consequences and therefore requires a show-cause notice specifically indicating that blacklisting is proposed, so that the affected party receives a meaningful opportunity to respond.

The Court declined to determine the validity of the forfeiture because doing so would require adjudication of disputed factual matters concerning the petitioner’s performance, and the parties had agreed to arbitration; the petitioner was therefore granted liberty to pursue arbitration or any other appropriate remedy.

In contrast, the issue of violation of natural justice in the blacklisting process did not involve disputed questions of fact and fell within the recognised exception to relegation to an alternate remedy.

The three show-cause notices did not specifically refer to proposed blacklisting, nor did the surrounding circumstances indicate that such action was contemplated. A general statement that “action in accordance with law” would be taken was insufficient to provide meaningful notice of the proposed penalty.

The Court partly allowed the petition by quashing and setting aside the portion of the order dated 08.10.2024 that blacklisted the petitioner.

The challenge to forfeiture of the security deposit was not adjudicated; the petitioner was granted liberty to invoke arbitration or any other appropriate remedy, with all contentions left open.

The respondents were not precluded from issuing a fresh show-cause notice specifically proposing blacklisting and thereafter proceeding in accordance with law after considering the petitioner’s response.

The petition was disposed of without costs, and the interlocutory application for early hearing was also disposed of.